Category: Capitalism

Capitalism is a social system based on the recognition of individual (human) rights, including property rights, in which all property is privately owned.

The New Financial Elite – The Rich Are Different

On By southwerkIn Capitalism

Chrystia Freeland has written an article in The Atlantic called The Rise of the New Global Elite.

Here is a sample –

Meanwhile, the vast majority of U.S. workers, however devoted and skilled at their jobs, have missed out on the windfalls of this winner-take-most economy—or worse, found their savings, employers, or professions ravaged by the same forces that have enriched the plutocratic elite. The result of these divergent trends is a jaw-dropping surge in U.S. income inequality. According to the economists Emmanuel Saez of Berkeley and Thomas Piketty of the Paris School of Economics, between 2002 and 2007, 65 percent of all income growth in the United States went to the top 1 percent of the population. The financial crisis interrupted this trend temporarily, as incomes for the top 1 percent fell more than those of the rest of the population in 2008. But recent evidence suggests that, in the wake of the crisis, incomes at the summit are rebounding more quickly than those below. One example: after a down year in 2008, the top 25 hedge-fund managers were paid, on average, more than $1 billion each in 2009, quickly eclipsing the record they had set in pre-recession 2007.

The middle class is devastated and will continue to be. The difference between the middle class and the new class of the wealthy is so large as to be difficult to understand.

Try this example –

As an example, she described a conversation with a couple at a Manhattan dinner party: “They started saying, ‘If you’re going to buy all this stuff, life starts getting really expensive. If you’re going to do the NetJet thing’”—this is a service offering “fractional aircraft ownership” for those who do not wish to buy outright—“‘and if you’re going to have four houses, and you’re going to run the four houses, it’s like you start spending some money.’”

The clincher, Peterson says, came from the wife: “She turns to me and she goes, ‘You know, the thing about 20’”—by this, she meant $20 million a year—“‘is 20 is only 10 after taxes.’ And everyone at the table is nodding.”

Only ten million. Worse, this new elite is acquiring a global perspective. In other words, their attachment and loyalty to the people of America is becoming fragile indeed.

The good news—and the bad news—for America is that the nation’s own super-elite is rapidly adjusting to this more global perspective. The U.S.-based CEO of one of the world’s largest hedge funds told me that his firm’s investment committee often discusses the question of who wins and who loses in today’s economy. In a recent internal debate, he said, one of his senior colleagues had argued that the hollowing-out of the American middle class didn’t really matter. “His point was that if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade,” the CEO recalled.

I heard a similar sentiment from the Taiwanese-born, 30-something CFO of a U.S. Internet company. A gentle, unpretentious man who went from public school to Harvard, he’s nonetheless not terribly sympathetic to the complaints of the American middle class. “We demand a higher paycheck than the rest of the world,” he told me. “So if you’re going to demand 10 times the paycheck, you need to deliver 10 times the value. It sounds harsh, but maybe people in the middle class need to decide to take a pay cut.”

He’s right, it sounds harsh. He has all the qualities necessary in Bond villain.

At last summer’s Aspen Ideas Festival, Michael Splinter, CEO of the Silicon Valley green-tech firm Applied Materials, said that if he were starting from scratch, only 20 percent of his workforce would be domestic. “This year, almost 90 percent of our sales will be outside the U.S.,” he explained. “The pull to be close to the customers—most of them in Asia—is enormous.” Speaking at the same conference, Thomas Wilson, CEO of Allstate, also lamented this global reality: “I can get [workers] anywhere in the world. It is a problem for America, but it is not necessarily a problem for American business … American businesses will adapt.”

 Why should they worry about American workers? They are virtuous and we just don’t understand. They don’t understand why we don’t understant. (I have serious doubts any of these individuals read my blog save for amusement.)

As a consequence of this disconnect, when business titans talk about the economy and their role in it, the notes they strike are often discordant: for example, Goldman Sachs CEO Lloyd Blankfein waving away public outrage in 2009 by saying he was “doing God’s work”; or the insistence by several top bankers after the immediate threat of the financial crisis receded that their institutions could have survived without TARP funding and that they had accepted it only because they had been strong-armed by Treasury Secretary Henry Paulson. Nor does this aloof disposition end at the water’s edge: think of BP CEO Tony Hayward, who complained of wanting to get his life back after the Gulf oil spill and then proceeded to do so by watching his yacht compete in a race off the Isle of Wight.

I want you to go and read the full article.

James Pilant

Dylan Ratigan Challenges The Current Beltway Definition Of “Free Market”

On By southwerkIn Capitalism1 Comment

Dylan Ratigan has a interesting essay in the Huffington Post. As is usual with his writing, the indignation boils over. I find this very pleasing. My indignation boils over from time to time. I have long been struck by the beltway commentator constant refrain, “free market.” It is used over and over as a cure for every economic malady. I can’t help but believe they don’t know the subject. Little industrial or financial business in the United States can be considered free market in any traditional sense: Our agricultural products are heavily subsidized; our financial industry is favored by a host of friendly laws as well as being able to borrow money from the Federal Reserve at zero percent interest.

What’s free market about any of that?

Here’s a quote from Ratigan’s essay –
Here we find ourselves today in a similar situation, where six industries have a stranglehold over Washington. And the draining of our current and future wealth will only continue as both the media and the political class not only tolerates but spreads the phrase “free market” when the reality doesn’t match the rhetoric.

Our politicians continue to take money from massive corporations to subsidize them in a rigged marketplace that only cares about protecting the incumbent structure. At the same time, the American people are drowning in a red sea of debt caused by perpetuating banking, health care, energy and defense systems that are expensive, ineffective and protected from competition.

So I have a challenge for those so-called free market Republicans who rode a wave of voter discontent into Washington. I challenge you to end massive corporate subsidies. To end tax loopholes. And to end rigged trade with China and release the true power of free markets.

This can no longer be simply a talking point to win votes. Because this broken system is not only costing American jobs… it’s costing us the very prosperity and freedoms that this country was founded on.

If we actually had an intelligent discussion about the economic future of this nation, the great mass of citizens would benefit. The kind of “single phrase” thinking currently in vogue only benefits the status quo. We can’t begin to address these issues until the appearance of intelligent thought is replaced by the real thing.

Fewer slogans, more thinking.

James Pilant

Will The Deficit Kill Us?

On By southwerkIn Capitalism

Joseph White has written a timely article. In the past few weeks we have been deluged with dire warnings about the deficit, sometimes they featured the Chinese, sometimes the destruction of social security; it was all very dramatic. Then when the continuation of tax cut became an issue, it all faded a way until the wealthy were assured their tax cuts. It was a budget buster of colossal size, totally unsupportable. It will cripple the government in financing every expenditure save those supported by their own fees.

Now that the wealthy have their money, the deficit has returned as an issue. We must cut back on entitlements. We must find cuts in education, etc.

The two-faced asinine clowns of the beltway would be funny if they weren’t taken so seriously.

Joseph White in the article quoted below has doubts as to the importance of deficit reduction.

I have similar doubts about the dangers of the deficit. However, the idea of deficit reduction now in the midst of the Second Great Depression strikes me as far more serious and dangerous. Such austerity reduces the size of any recovery and delays it. I have seen estimates of up to ten years of recovery to return to 2007 levels of employment.

We need a serious national discussion about expenditures. We will not get it from Obama’s stacked commissions or the “beltway boys.” The big act is that these are not matters of dispute. “Everyone recognized the danger of deficits.” “Like a well functioning family, a nation must not have any debts.” Etc.

Those are not settled matters. There are far more nuances to national debt management than any family budget.

As usual, I call with little hope for actual intelligent thought.

This is written by Joseph White at the Financial Times –

In the 1980s, deficit hawks recognized that, in the words of former CBO Director Rudy Penner, , “the crisis is there is no crisis.” In other words, the deficit wasn’t actually hurting people much. But it could, eventually, like “termites in the basement” as former OMB Director Charlie Schultze put it. How could this be dramatized?

One approach was to make arguments about the economic good that would be accomplished by reducing deficits. The idea was that lower deficits would produce greater national savings so more investment and a larger economy. Unfortunately, the standard economic estimates (such as by CBO) did not project enough extra growth to convincingly justify the pain of the deficit reduction. (Would you have abolished the Navy and Medicaid so that the economy would be 3% bigger thirty years later?). So deficit hawks promoted two other arguments, each of which should sound familiar.

One was to invent scenarios about what would happen if absolutely nothing were done for decades – a highly implausible case, but one that could, with sufficient assumptions, lead to economic disaster. The point was to promote so much fear that the goal of deficit reduction would take precedence over messy, uncomfortable subjects like the consequences of any particular means of reducing the deficit.

The other was to claim that “the markets” would eventually turn against the U.S. government and U.S. economy because of the spiraling debt, forcing some sort of payback that would make everyone miserable. …

I had never thought about it the way he presents it. I think this is similar attitude to Paul Krugman.

I recommend it to your reading and thought.

James Pilant

Mozilla Firefox Unstable?

On By southwerkIn Capitalism3 Comments

My Firefox browser has become increasingly unstable over the last few weeks. Is anybody else having the same problem?

James Pilant

$250,000 And Poor

On By southwerkIn Capitalism2 Comments

That headline caught my eye. This is from The Fiscal Times. The whole article is called Down and Out on $250,000 a Year.

My first response was to see how far I could read before I got the joke. But I was wrong. This is not a joke story or a satire. From the article –

By most measures, a $250,000 household income is substantial. It is six times the national average, and just 2.9 percent of couples earn that much or more. “For the average person in this country, a $250,000 household income is an unattainably high annual sum — they’ll never see it,” says Roberton Williams, an analyst at the Tax Policy Center, a nonpartisan think tank in Washington, D.C.

But just how flush is a family of four with a $250,000 income? Are they really “rich”? To find the answer, The Fiscal Times asked BDO USA, a national tax accounting firm, to compute the total state, local and federal tax burden of a hypothetical two-career couple with two kids, earning $250,000. To factor in varying state and local taxes, as well as drastically different costs of living, BDO placed the couple in eight different locales around the country with top-notch public school districts, using national data on spending.

A reader begins to get the idea that we are going to explore the difficulties of getting by on this sum of money each year. So, you read further on, things like this –

Some of the expenses incurred by couples like the Joneses may seem lavish – such as $5,000 on a housecleaner, a $1,200 annual dry cleaning tab and $4,000 on kids’ activities. But when both parents are working, it is impossible for them to maintain the home, care for the kids and dress for their professional jobs without a big outlay.

And it keeps going like this. If I was from a distant part of the world with no knowledge of the United States, I might have gotten teary eyed. However, I do live here and I’m not going to cry over those suffering with a quarter of a million dollars in income.

Why don’t you read the article? If you feel sorry for them and wish them better, please let me know.

James Pilant

Social Security 101 (via Crooks and Liars)

On By southwerkIn Capitalism

Crooks and Liars is one of favorite blogs. This is a critical entry. It talks about the malicious propaganda we are all exposed to about Social Security and its trust fund. I wish everyone concerned with the issue would read this particular post.

James Pilant

From Crooks and Liars –

<em>My career, pre-blogging, was as third-party administrator of employer-provided retirement plans. For years I was a certified practitioner, and I watched as private pensions were systematically dismantled, underfunded, and ultiimately converted to 401k plans subject to the whims of the market and unsophisticated investors. While owners might — MIGHT — have retired with adequate funds, workers almost never did. The one single thing that every worker could always count on at retirement was (and is) Social Security.

Yet it seems that conservative lies have taken hold to the extent that the truth is called a lie, while lies are called the truth. Once upon a time, that only happened in fiction. Now it’s real. So let’s talk about Social Security, what it is, and why you shouldn’t believe everything conservatives and their minions in the press tell you.

What Will Become Of The Internet?

On By southwerkIn Capitalism

The web blog, Grand Strategy: The View From Oregon, has a post on the future of the Internet.

It’s a very good post, thoughtful and reasoned. Here’s a quote. I recommend you read all of it.

James Pilant

The fight for WikiLeaks to make documents public in the Western democracies and the fight for activists like Ai Weiwei and Liu Xiaobo to speak out publicly in China are intimately related. One cannot avoid noticing that these struggles are taking place in the two largest economies in the world at present. Today, these are the fights worth fighting. This is the good fight. It is not a fight of nation-state against nation-state, nor class against class, but of individuals against institutions that seek to regiment the life of the individual for the convenience of those institutions and those who control and benefit from the institutions.

What Should We Do for the Economy? Fix the Mistake – What Mistake? (via Realizing A Better World)

On By southwerkIn Capitalism

Luke H. Lee has a slide presentation explaining his solution to the current economic crisis. This is slide four of an eight slide presentation. I recommend you go have a look at the entire set.

Go here for all of the slides.

James Pilant

Buying Your Child Into A College!

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, monopoly, Teaching2 Comments

From the Huffington Post –

Dr. Michael Bardwil donated $40,000 to his alma mater, a Jesuit school in Houston, Texas, after a school administrator advised it would guarantee his son admission. So when his son was rejected earlier this year, Bardwil was upset.

ABC reports that a school administrator asked that Bardwil donate $100,000 to the school, and in return the prestigious college preparatory would offer admission to his son. When Bardwil pledged $50,000 over a five year period, he assumed it was a sure thing.

The elite colleges and universities admit about 1/3 of their students based on parental giving, another 1/3 based on legacy enrollments (their parents went there) and the last 1/3 on merit. This is one of the most significant reasons that the upper classes have solidified. It’s very difficult to move up in the world without going to one of these school. With only 1/3 of the enrollment based on merit, your children and mine have little chance of getting in. The open spots are so few, a student can’t get in on high scores but only with almost superhuman scores. That’s not fair.

We like to think this country is a meritocracy where you get ahead becaue you’re smart or hard working. But most of us understand the truth and that truth is that having good contacts, going to good schools and having upper class mannerisms are the basic requirements for success. These people live in a bubble world where no amount of incompetence, poor conduct or even criminal acts can knock them down. Now, I’m sure you can remind me of Madoff or some other corporate malefactor. But let me remind you that the world economy was savaged by the geniuses on Wall Street back in 2007 and not one has paid any penalty for their criminal acts or simple incompetence.

The middle class lives in a world where any failure can doom your career. They live in a world where you can do everything, absolutely everything they taught you in high school or college would gurantee you success and still everything can be taken from them, their jobs, their homes, their insurance, their benefits, their pensions, their investments – everything. The children of the middle class are thrown out into a world of diminishing opportunity and low paying jobs.

Let me repeat, one of the key factors is the difficulty of the children of the middle class to get into prestigious schools.

I see nothing on the horizon that will change those rules.

You see this is the hardcore, the never changing affirmative action, the big quota system. The guaranteed access to the best spots to those who already have money or status is a vicious assault on the concept of merit.

It is astonishing considering the amount of federal aid these institutions gobble up that they are not required to admit based on merit.

James Pilant

Business Ethics Roundup 1/1/11!

On By southwerkIn business ethics, Capitalism, Corporate Social Responsibility, ethics, Government Failure, Philosophy of Business, White Collar Crime1 Comment

Let’s start with a small disclaimer here. I have 42 business ethics web sites (by my definition which is broad) listed on my favorites in that single category. I have 56 business ethics “related” sites on my favorites. So, I ‘m never going to to get more that a partial glimpse at what’s going on. With that out of the way, let’s start the new year rolling!

The Crane and Matten Blog explain why business ethics is more significant culturally than CSR.

Here’s a quote – CSR is also, as might be expected, a lot more business-friendly than business ethics. In fact, people often tend to use CSR when they’re talking about the good things companies are doing, and business ethics (or a lack of them) when talking about the bad things they do.

The Ruder Finn Ethics Blog discusses ethics and giving while providing some fascinating statistics.

Here’s a quote – We give for many different reasons. We may give as an expression of friendship and love or just reciprocate. Retailers, economists and Wall Street eagerly all hope that people will spend much this year are and thus sustain the slow recovery of our economy. The National Retail Federation expects an increase in 2010 Holiday sales of 2.3% to $447.1 billion. (Gifts from the rich to the rich.)

From the web blog, Business Ethics Training, we have a review of the book, Ship of Fools: How Corruption and Stupidity Sank the Celtic Tiger.

Here’s a quote – With all the talk of toxic assets (real estate) and the resulting fallout in the States – its easy to overlook what happened in Ireland. Particularly the situation with NAMA (National Asset Management Agency), that holds the toxic assets.

From the web site, Ethix: Business Technology Ethics, we have a book review of After the Fall: Saving Capitalism From Wall Street—and Washington by Nicole Gelinas

Here’s a quote – Gelinas key message is that capitalism needs clear rules in order to flourish, and that must include allowing bad businesses to fail. Bail outs only encourage further bad behavior, and what we have seen in the recent financial meltdown is simply a lesson forgotten from what happened in the 1920s and ’30s.

David Yamada’s Minding the Workplace has several posts. I recommend you read his year end closing, but the one I discussing is the next to the last. He explains what one should do if bullied at work.

Here’s a quote – There’s a lot of cheap and sometimes dangerous “one size fits all” advice out there on how to handle workplace bullying situations, especially in newspaper work advice columns. These resources are no substitute for understanding the dynamics of workplace bullying and how they relate to one’s specific circumstances.